Varcoe: Trade panel deals NDP another loss over craft beer subsidies

Finance Minister Joe Ceci and the NDP government sure love craft beer, but they might want to start hitting the hard stuff.

Their monkeying around with Alberta’s beer taxes (also known as liquor markups) in an attempt to promote the domestic craft-brewing industry has blown up in their faces.

Again.

In a new decision, the province lost the key part of its appeal of an internal trade ruling that was originally made last summer.

The initial decision found Alberta’s policy of boosting beer markups — and then offering back rebates, but only to provincial brewers — was offside of free-trade provisions within Canada’s Agreement on Internal Trade.

Now, a three-member appeal panel that heard the dispute between the government and Calgary-based Artisan Ales Consulting has concluded the province’s program to promote local brewers violates provisions within the trade agreement.

It found the Alberta Small Brewers Development Program (ASBD) “provides a competitive advantage” to domestically produced beer.

“It distorts the playing field and, as such, results in ‘less favourable treatment’ of beer produced in other provinces,” states the new ruling.

While the panel concluded higher beer markups don’t discriminate against imported brew, the grant program acts “as an obstacle to internal trade, providing brewers in Alberta with competitive advantages that brewers and sellers in other provinces do not have and preventing entry into the Alberta market,” it said.

“We kicked their asses,” said a jubilant Mike Tessier, who started the beer-importing agency Artisan Ales with his partner, Bo Vitanov, in 2009.

The dispute began in October 2015 when the NDP government overhauled the beer markup system, a profit the province collects for supplying and distributing liquor.

Alberta had previously applied a lower tax to small breweries to encourage the sector’s development.

In its place, the government imposed a higher markup of $1.25 a litre, except on suds produced in Saskatchewan, British Columbia and Alberta. (All are members of the New West Partnership, a pact of free-trading allies that now spend their time scrapping over licence plates and pipelines.)

The measure helped Alberta brewers, but hammered local businesses like the one started by Tessier and Vitanov.

By August 2016, the Notley government revised the system again, applying the $1.25-a-litre markup to beer brewed in any province. Then, it offered a grant through ASBD to beer produced in the province.

For Artisan Ales, the effect was seismic.

In the year after the initial changes, Artisan’s sales fell by a third and its profits plunged 86 per cent.

Last summer, a three-member trade panel ruled against the province in a 2-1 decision.

The appeal tribunal came at the issue from a slightly different perspective, but said the rebate program “acts as an obstacle to internal trade.”

There’s no cash award for the Calgary couple, although the province has been ordered to pick up its costs tied to the appeal.

Tessier said they’ve permanently lost some business and upset some players within Alberta’s craft-brewing sector who now receive provincial grants.

But the pair were out to prove a point.

“For us, it’s never been about trying to screw the local breweries, it’s been about getting the government to basically follow rules and laws, just like the rest of us,” Vitanov said.

Derek From, a lawyer with the Canadian Constitution Foundation who helped the Calgary entrepreneurs on the case, said the ruling marks an important victory against provincial policies that restrict internal trade.

It’s also good news for beer drinkers who’ve had to put up with less selection from out-of-province brewers due to the rules.

“If they want to protect their industry by holding someone else in Canada down, they can’t do that — and that is a big deal,” he said.

From noted the province still has the ability to assist the domestic beer sector through other measures, such as training incentives or providing interest-free loans.

Alberta will have six months to comply with the ruling or potentially face fines, although none of the money would go to the business, he added.

The ruling comes two months after the Supreme Court of Canada backed a law in New Brunswick that fined a resident for bringing Quebec beer across the provincial border.

The court found the province can restrict commerce, but only if there’s another primary purpose being pursued by its own laws, such as protecting public heath.

While the fallout from these two cases is sorted out, the lawyer credits Tessier and Vitanov for not backing down, despite the time and money required to battle the province.

“I wish there were more people like Mike and Bo that were in it for the fight, because it’s only those types of people who can hold our government honest,” he said.

The question now is what steps the province will take in the coming days to comply with the ruling while pursuing its broader objective to grow Alberta’s craft beer sector.

A statement from the finance minister on Sunday evening noted the province’s rebate program has helped 36 new breweries open in the past two years.

“We are currently reviewing the decision and will take the time necessary to continue to do what is in the best interests of Alberta brewers,” Ceci said.

On Monday, Alberta Trade Minister Deron Bilous said he was disappointed with the panel’s new ruling, but added: “We will be modifying our program.”

While it’s a laudable goal to grow the sector, it’s also clear the province can’t simply do it by trying to blatantly disadvantage other companies in the country.

Coming at a time when Canada is already facing trade problems with the United States, the last thing any province should be doing is trying to erect new internal trade barriers.

As for Tessier and Vitanov, they are hoping to grow their business again and recently toasted their victory by drinking some fine imported Quebec beer.

“We just weren’t going to take it,” Vitanov said. “It was wrong, we knew it was wrong and we were just going to fight it until the end. And we did and we won.”

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